The List Universe recently published their list of ten lost rules of etiquette. The one that really got our attention was their #1 reason – talking about money and possessions.
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When it comes to money, the author says that a gentleman would never:
If you listen to our leaders, be they in business or government, it seems there’s a competition to frame our financial situation in the direst terms. Our media hypes the times so that we stay tuned in. We hear terms like meltdown, nose-dive, crash, collapse, and Great Depression.
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We found a great white paper by Marvin Bolt of Alpha Plus Advisors [PDF]. It’s well worth your time to read the full paper to understand historical mutual fund flows and market performance.
Specifically, he looks specifically at what individual investors did with their money during four recent periods:
Stock market crash
In the first quarter of 1987, individual investors placed a then-record amount into the market as stock prices rose. Of course, in October of that year, the stock market crashed. Individual investors responded by withdrawing record amounts of money as the market hit a low we haven’t seen since.
Gulf War & recession
In the second quarter of 1990, there was a huge inflow of funds as the market hit its high for the period. By the third quarter, investors were pulling money out just as the market hit another low point.
Dot.com bubble and 9/11
At the height of the dot.com bubble, investors poured a new record amount of money into the market in the first quarter of 2000. The S&P 500 hit a high in that same quarter. Things soon changed as the market began falling, reaching a low in the third quarter of 2002, just when individual investors were withdrawing record amounts of money.
Housing bubble & mortgage crisis
The market hit its high in 2007 as investors poured money in again amidst the euphoria. While all the data is not yet in, it appears that in October of this year, a new record amount of money was pulled out of the stock market.
Rising above the crowd
We want to buy low and sell high. History shows that the crowds tend to do the opposite – they buy high and sell low. They invest heavily during the bubble and get out during what we’ll call the crater.
Think about what’s happening right now. Stock prices have been falling. But for every seller, there has to be a buyer! Who’s buying and who’s selling? Morningstar has a great video that’s well worth your time to gain the proper perspective on this crucial point.
To rise above the crowd, you can’t think like the crowd. You have to do the opposite.
So take a deep breath. If you don’t need the money for five to seven years, the odds are heavily in your favor. If you need the money sooner than that, stocks probably aren’t the best investment for that money. Because we’ve relearned just how risky stocks can be in the short-run.
Educate yourself to maintain the proper perspective. We can’t count on our media or our leaders to do this for us. Knight Kiplinger wrote a fantastic piece explaining all of the differences between today’s situation and the Great Depression. We highly recommend that you read this article to see why he thinks we’re not ready to jump over the cliff.
Market timing is a risky game. Since the crowd tends to get it wrong, perhaps the best way to get it right is to keep investing through the whole cycle. You’ll buy fewer shares when the market is up. You’ll get some great deals when the market is down like it is now. Over time, you’ll end up with a decent return.
Thanks so much for reading our post today. Join us next time as we discuss overcoming guilt about how you choose to spend your time. Until then, here’s to your bigg success!
Direct link to The Bigg Success Show audio file:
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We’ve heard a lot of discussion about the toxic assets held by our financial institutions. Here’s what hasn’t been explicitly stated too often – in order for these financial institutions to have toxic assets, many of us must be carrying toxic debt.
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We’ve seen government at all levels, corporations, and yes, individuals borrow more and more money over the past few years. Many people now have this sinking feeling that they will never get out from under it all.
So today we want to talk about what to do if you have that feeling.
Cash is king again and credit score is queen. In the coming years, people with cash and a good credit score will have more options, be able to take advantage of more opportunities, and will experience less stress. Isn’t that a nice place to be?
It requires discipline. It’s amazing how we can rationalize our purchasing decisions. If I can’t afford to buy it now without credit, why would I think that I can afford to pay for it later along with an exorbitant interest rate?
So we need to pay cash or don’t buy at all. Eliminate purchases on credit, even ones that promise “no interest, no payments” for some period of time. Of course, if you already have the money, and you’re just using their money, and you need the item … really need it … then go ahead and enjoy!
Perhaps more so than at any time in our lives, we need to build up our emergency reserves. Financial planners have been saying it all along, for the most part. Many of us weren’t listening. Keep six to twelve months of living expenses in a readily-accessible reserve account just in case you need it.
Pay off almost all of your debt. You may not pay off your mortgage. You may even keep a car loan for a time. Get rid of all other debt; it’s robbing you of your future.
Then you’ll be ready to start looking for the tremendous opportunities that will be available to anyone with cash to invest.
Drastic times call for drastic measures. These steps will not be easy. In fact, they will be uncomfortable at best. However, if you’re feeling overwhelmed by all of your debt, they are necessary.
Sit down and logically determine how quickly you could get out of debt, given the two exceptions we noted above. If it’s more than five years, even after considering the steps we’re about to outline, it’s probably best to seek professional help. Here are the steps:
Look around for anything that you don’t need, never needed, don’t use, or never used. Get rid of it and use the money to build up your cash reserves and/or pay off debt.
Get a part-time job or find a way to make some spare money. Even if it’s only $300, $400, or $500 a month, plowing this money into paying off high-interest debt will pay you bigg dividends in the future. This doesn’t have to be something to do forever, just do it until you get your financial situation shored up.
We always hesitate to suggest this because you’re robbing your future. Talk to your financial planner before you take this drastic step. But even with an employee match, it may be better to pay off high-cost debt. You may earn 30% by paying off a credit card, for example, and give yourself more room to maneuver through tough times and unexpected events.
With the price of houses down in many markets and the continued lack of buyer demand, now probably isn’t the time to consider downsizing. However, analyze your specific situation because you might be surprised.
Another option might be to rent part of your home. Or find other ways to cut costs on your existing house. For example, property tax assessments will be going out in January. Check your assessment and the price of houses that have sold nearby to see if you can protest the value you’re being charged for.
Could you get by with one less car? Could you take advantage of public transportation? Could you car pool? All of these ways put money in your pocket that can be used to build up cash and pay off debt.
We’ve covered the bigg ones, but it’s also important to look at all your other discretionary expenses. Many people have already cut back on dining out. Go even further – buy fewer prepared foods and cook meals yourself. Sure it will take more time, but it will save you money that can be used for stockpiling cash and knocking down debt.
Look for your recurring expenses – cable bills, cell phone bills, and everything else. Is there a way to make cuts?
Strive to stretch every penny you can out of every dollar you bring in so you get back on your feet and on track to being a bigg success!
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Next time, we’ll discuss the “must-haves” for your productivity tool kit. Until then, here’s to your bigg success!
Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00246-102008.mp3
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People who find joy in bad news have to be pretty happy lately. The financial crisis has dominated the news, as we watch Wall Street and Washington scramble.
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We don’t usually do this – in fact, we’ve never done it in the 230 shows we’ve done so far. But this subject is so important and so timely. So we want to share some valuable information that our newsletter subscribers received in their In boxes last Friday.
In the last edition of The Bigg Success Weekly, we discussed “Profiting from Panic”. It was about maintaining the proper mindset in the midst of all this turmoil.
We started with the safety net that exists for depositors, investors, and insureds. Here are some links directly to pages that can answer your questions about banks, brokers, and insurers in a hurry.
In general, banks are insured by the Federal Deposit Insurance Corporation (FDIC). However, not all money invested through banks is insured. What would happen if your bank failed? If you have accounts with a failed bank, what should you do? How can you obtain a release of lien, if a failed institution is your lienholder? The following links provide the answers to all of these questions:
A Guide to What Is and Is Not Protected by FDIC Insurance
FDIC Bank Find (make sure your institution is FDIC insured)
When a Bank Fails- Facts for Depositors, Creditors, and Borrowers
Accounts with brokerage firms also offer some protection through the Securities Investor Protection Corporation (SIPC). The coverage isn't anything like that offered by the FDIC, but it's still important to know what remedies might be available to you.
While banks and brokers have federal backing, insurance companies have backing through associations at the state level.
The National Conference of Insurance Guaranty Funds
If your insurance company fails, you'll want to contact your state's Department of Insurance, since insurance companies are overseen by that department in each state in which they operate. Click here for a directory of each state's office.
Your State's Department of Insurance or Guaranty Association
Warren Buffett, the richest man in the world according to Forbes, recently invested $5 billion in Goldman Sachs, in the midst of all this turmoil. That’s pretty typical of how he’s made his fortune – he says he’s “fearful when others are greedy and greedy when others are fearful.”
He has also opined, “We want to do business in [a pessimistic] environment, not because we like pessimism but because we like the prices it produces.”
From: The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, by Robert Hagstrom, Jr.
Warren Buffett is not alone.
J. Paul Getty was one of the first billionaires and the richest man in the world in his day, according to The Guinness Book of World Records. He said, “I began buying stocks at the depths of the [Great] Depression. Prices were at their lowest, and there weren’t many stock buyers around. Most people with money to invest were unable to see the forest of potential profit for the multitudinous trees of their largely baseless fears.”
He went on to say that he made over 100 times his investment on many of these stocks!
From: How To Be Rich, by J. Paul Getty.
So we can learn from these two men that we shouldn’t panic, even in turbulent times. Now, you may not want to rush out and buy a bunch of stocks. However, you probably shouldn’t sell out right now either.
These two billionaires made a fortune by going against grain. So keep making those 401(k) contributions. By investing consistently over time – paycheck by paycheck – you’re dollar-cost averaging into the market. In bad times, you’ll buy more shares with the same money than you can in good times – just like the billionaires.
Above all – diversify, diversify, diversify. Diversification is one of the four key investment principles, according to William Sharpe, a Nobel Prize winning financial economist. Our newsletter subscribers read about these as well as some ideas to simply put them into practice.
Today, more than ever, it’s important for you to take on the role of Chief Investment Officer for you and your family. You can’t count on Wall Street or Washington to do it for you!
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| If you would like to get the newsletter we’ve referred to here, just e-mail us: bigginfo@biggsuccess.com, with “Profiting from Panic” in the subject line. We’ll send it to you and sign you up for The Bigg Success Weekly! |
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Next time, we’ll discuss why it’s so important to move beyond personal productivity. Until then, here’s to your bigg success!
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By Bigg Success Staff
09-26-08
Bigg Success with Money
Warren Buffett, the richest man in the world according to Forbes, may well be the greatest investor of all time. Not surprisingly, he recently made a sizeable investment in Goldman Sachs, one of the firms who had been battered by the recent crisis on Wall Street.
Typical Buffett move.
It goes along with his strategy “to be fearful when others are greedy and to be greedy when others are fearful.”
So what does Buffett know? Why is he willing to invest now in the midst of all this financial turmoil?
Benjamin Graham, Warren Buffett’s college professor and mentor said, “An investor’s worst enemy is not the stock market, but oneself.”
A great book by Robert Hagstrom, Jr. called The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, quotes Buffett:
“The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or an industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”
However, many investors do the opposite. They buy when everyone is buying, which drives prices higher. They sell when everyone is selling, driving prices down.
Think of it this way – if all the restaurants in your community suddenly cut their prices by twenty percent, would you eat out more?
Of course you would!
Another man who understood business and stock market cycles was the late J. Paul Getty, one of the world’s first billionaires and, at one time, the richest man in the world, according to the Guinness Book of World Records.
In his book, How To Be Rich, he says, “I began buying stocks at the depths of the Depression. Prices were at their lowest, and there weren’t many stock buyers around. Most people with money to invest were unable to see the forest of potential profit for the multitudinous trees of their largely baseless fears. I had confidence in the future of the American economy and realized that shares of many entirely sound companies with fine potentials were selling at only a fraction of their true worth.”
He goes on to say that he made over 100 times his investment on many of these stocks, bought during the depths of the Great Depression!
He continues, “Common stocks should be purchased when their prices are low, not after they have risen to high levels during an upward bull-market spiral. Buy when everyone is selling and hold on until everyone else is buying – this is more than just a catch slogan. It is the very essence of successful investment.”
How did he have so much confidence that prices would go up?
Because as he explains, “History shows that the overall trend of stock prices – like the overall trend of living costs, wages and almost everything else – is up. Naturally there have been and always will be dips, slumps, recessions and even depressions, but these are invariably followed by recoveries which carry most stock prices to new highs. Assuming that a stock and the company behind it are sound, an investor can hardly lose if he buys shares at the bottom and holds them until the inevitable upward cycle gets under way.”
J. Paul Getty fully understood the turbulence we faced. While every stock market crash or bear market has its own unique features, they also have a lot in common.
Getty said, “The anatomy of a stock market boom-and-bust … is not too difficult to analyze. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place.”
Getty offered advice to weather the storms. He said, “Another valuable investment secret is that the owners of sound securities should never panic and unload their holdings when prices skid. Countless individuals have panicked during slumps, selling out when their stocks fell a few points, only to find that before long the prices were once more rising.”
Think about the advice from these two great investors when you’re thinking of buying … or selling.
Hear today’s lesson and laugh on The Bigg Success Show
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